Things looked really hopeless this week once we got through the trading day on Wednesday. The Dow was down nearly 400 points that day when news overnight spiked their yields well over 7% to 7.50%. Anything over 7% is considered default. Unable to pay their bills. The bears were jumping up and down with delight as they seemed to have taken over the market from the bulls. Not many would have argued this to be a fact of stock market life. When you’re down four hundred points on the Dow, and an astounding 106 points on the Nasdaq, you better take notice at what fundamental forces were behind such a devastating move lower. To ignore it would be a fool’s game.
Just when things looked most dire for the bulls, the yield plunged down 10% on Wednesday night, offering the bulls some desperately needed relief. The yield now at 6.83% and below the key level of 7%, and thus, a gap up took place, although the Nasdaq lagged badly. While the Dow was up one hundred plus points, the Nasdaq was up only three points as Apple Inc. (AAPL) was crushed. It’s heavily weighted, and thus, the Nasdaq simply could not get moving. At least the markets held for a day.
Today we woke up to another 5% move down on the yield to 6.5%, and this time the market rocked up with everyone joining in on the party. That’s the medicine the market needed, for sure. A powerful strong up day with a close worthy of saying things had swung back in favor of the bulls, at least temporarily. When all seemed lost, hope was given to the new regime coming in over in Italy, which is where the greatest risk for a devastating default exists as their economy is much larger than Greece’s, thus, much more difficult to bail out.
The market is clearly holding out hope that things can be reversed over in Europe. It’s not for me to argue with the market, thus, I accept its attempts to hold onto what seems like a difficult task at best, but the market knows more than any of us. For now, the message is all is not lost at this point in time. A quiet week point wise in the market, but a week to fry the nerves of even the most astute trader. The whipsaw is just ridiculous at best.
When things looked at their worst on Wednesday, once the final bell rang, there was one thing a technical analyst, such as myself, had to do. It was to look to see if the damage caused by the big down day had broken the back of the index charts technically. Did those critical 50-day exponential moving averages get taken out with any force, or did they find a way to hold the line in the sand for the bulls. The answer was the 50,day test held, although, by only a hair. One percent above, and thus, no one was feeling all that good about the fact that we were still above that key level of massive support. Technically speaking, we had not broken. You don’t give up on an index, or an overall market, until there’s a true change of character. That would only be true if we lost the 50’s.
We did not, so the onus was still on the bears to take things down through the breakdown levels. Never lose site of the bigger picture when you’re trying to understand what’s taking place. Not until the bears can capture those 50’s should we even think about being more bearish. It just didn’t happen. It doesn’t mean it won’t happen. However, it didn’t, and that’s the key point. It held. The yields dropped, and the Dow, basically, recovered all its losses. In the end, always let the technicals guide you through the maze. For now, 1221 is that level on the S&P 500. Only when that breaks with force should we realize more trouble is likely ahead for the bulls.
Now let’s step back a bit and look at the market. Here’s the truth. It goes nowhere. It basically never goes anywhere. Large swings all around, but in the end, it seems we go nowhere. Things look very bullish, and then bad news hits from many potential sources, and down we go. Then things look bad, and then good news hits. Relatively speaking, anyway. Up we go, and when we look back many months we see nothing. Same goes for looking at things over many years. The decade plus of nothing. The key to it all is making good money when the opportunity is there. It’s not easy for when it’s there, the market doesn’t always look the way we’d like. It takes guts and some real belief to play bigger when the market offers the opportunity.
Most miss out on this as the ability to go long or short at certain moments when the market has been moving in the opposite direction is not in most people’s makeup. Just too tough emotionally. That’s why so few ever try to do this for a living. Simply too tough emotionally not to mention adding in how tough it can be to get things right technically. Add in more from the aspect of surprising unexpected news such as we saw on Wednesday. No wonder things are so tough in this game. For now, the market is nothing more than a big whipsaw load of nonsense going absolutely nowhere in the big picture. It may continue for many more years. Be prepared.
So here we are in the middle of the range. 1292 the top or the last high put in off the run up from the bottom. 1221 the bottom as that is the slowly rising 50-day exponential moving average. It’ll take a forceful move through either one of those levels to get the next more directional move. That is, until the next surprising, unexpected news hits to change it all up once again. Your focus should only be 1221 and 1292. All else is simply noise. Over playing makes little sense, but some exposure seems right, whether you’re a bull or a bear. The charts are solid technically, but the fundamental backdrop is very uncertain. When it’s full of this type of day to day shocks to the system, you need to be more appropriate with your trading. Keep that in mind here. Nothing will be easy.
Peace,
Jack
